Opinion 464

By Committee on Professional Ethics

NEW YORK STATE BAR ASSOCIATION
Committee on Professional Ethics

Opinion #464- 04/21/1977 (31-77)

Topic: Contingent fee; expenses of litigation
Digest: Improper for lawyer to agree with client that reimbursement of funds advanced by lawyer to defray cost of litigation will be contingent on its outcome
Code:  EC 2-20, 5-7, 5-8; DR 2-106, 5-101(A), 5-103(B)

QUESTION

May a lawyer properly advance funds to defray certain costs of litigation on the understanding that reimbursement will be contingent on the outcome of suit?

OPINION

The provisions of the Code of Professional Responsibility most germane to this inquiry are found at EC 5-8 and DR 5-103(B). EC 5-8 states in relevant part:”[T]he advancing or guaranteeing of payment of the costs and expenses of litigation by a lawyer may be the only way a client can enforce his cause of action, but the ultimate liability for such costs and expenses must be that of the client.”Consistent with EC 5-8, DR 5-103(B) provides:”While representing a client in connection with contemplated or pending litigation, a lawyer shall not advance or guarantee financial assistance to his client, except that a lawyer may advance or guarantee the expenses of litigation, including court costs, expenses of investigation, expenses of medical examination, and costs of obtaining and presenting evidence, provided the client remains ultimately liable for such expenses.”Underlying these provisions of the Code is a general proscription against lawyers acquiring financial interests in the outcome of their clients’ causes of action, subject only to their ability to enter into ethically appropriate contingent fee arrangements in certain types of cases. See, EC 2-20, EC 5-7, DR 2-106 and DR 5-101(A); also see, N. Y. State 390 (1975), N. Y. State 288 (1975) and N. Y. State 37a (1968); cf., Judiciary Law §474.As EC 5-7 explains:”The possibility of an adverse effect upon the exercise of free judgment by a lawyer on behalf of his client during litigation generally makes it undesirable for the lawyer to acquire a proprietary interest in the cause of his client or otherwise to become financially interested in the outcome of the litigation. *** Although a contingent fee arrangement gives a lawyer a financial interest in the outcome of litigation, a reasonable contingent fee is permissible in civil cases because it may be the only means by which a layman can obtain the services of a lawyer of his choice. “While the Code thus expressly permits both contingent fee arrangements and the advancing of litigation expenses by counsel, it also continues the long recognized distinction between the propriety of a lawyer’s fee being made contingent on the outcome of litigation and the impropriety of making litigation expenses contingent thereon. See N.Y. City 658 (1944), N.Y. City 282 (1933) and N.Y. City 175 (1931); also see, Ore. Op. No. 154 (1967) and L.A. Co. Op. No. 76 (1934) respectively indexed at 7185 and 6142, 0. Maru, 1970 Supplement to the Digest of Bar Association Ethics Opinions (1972); cf., N.C. Op. No. 303 (1960) and Mo. Op. No. 16 (undated) respectively indexed at 3327 and 1406, 0. Maru, Digest of Bar Association Ethics Opinions (1970).This distinction is grounded upon the concept that if lawyers were permitted to finance their clients’ causes, it would generate unmeritorious suits and ultimately obfuscate the elemental difference between the roles of lawyer and client.For the reasons stated, the question posed must be answered in the negative.

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